EPA’s Craddock: UK’s bigtech tax “anti-competitive”

Damage to the UK’s growing fintech sector will far outweigh any benefits from introducing a tax on bigtech, according to Tony Craddock, director general of the Emerging Payments Association (EPA).

“We completely agree with the Organisation for Economic Cooperation and Development (OECD)’s position which is that [the UK] should delay the introduction of the tax,” says Craddock. “The tax is a lovely example of one country doing its best to set an example for political reasons, not for sound economic reasons. The money that is made from this tax for the country… the upside will be exceeded many times over by the damage this does to the interest of UK companies.”

“There is an amount of money that [the Government] are targeting that they are hoping to make from the tax on these organisations. That is essentially an example of a government trying to manipulate the market in a way that I think is anti-competitive and as a result of this, this is sending a message to these tech companies that the UK is an expense place to do business.”

The OECD published a proposal to bring about harmonised global tax rules for the growing bigtech sector on October 9, 2019. In a press release on the statement the OECD secretary general, Angel Gurría said that “failure to reach agreement by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy”.

In July last year HM Revenue and Customs announced the introduction of a two percent tax for “large multi-national enterprises with revenue derived from the provision of a social media platform, a search engine or an online marketplace (‘in scope activities’) to UK users”. The announcement was made with the stipulation that the tax would be disapplied “once an appropriate international solution is in place.”

On January 22, Gurría told the BBC at the World Economic Forum that the UK should “hold fire” on introducing the tax in April and warned that if countries went ahead independently it could lead to “tensions rising all over the place”.

And the UK is not the first European country to look to introduce the tax. The European Commission published a proposal for a common tax on March 21, 2018. The proposal is currently being reviewed by the Committee of permanent representatives.

On July 11, 2019, the French Senate passed the final vote on a digital tax for bigtechs in France.

At a news conference at the World Economic Forum, the French finance minister, Bruno Le Maire said France and the US had come to an agreement to delay the implementation of the French digital tax until the end of 2020, Bloomberg reported. The move comes after the US warned it would impose tariffs on French goods in retaliation to France’s digital tax.

The US Treasury Secretary, Steven Mnuchin told the Wall Street Journal that the UK and Italy could face the same treatment if they go ahead with their respective digital taxes.

To be effective, a tax on bigtech needs to be applied in a holistic way, says Craddock.

“The difficulty with this is that it is all or nothing. Either all countries across the OECD have to impose a two percent revenue tax or none of them do. The difficulty with one or two doing so, is that as soon as that happens, these tech companies will move to a place where two percent revenue is not charged. It is not difficult for them to do that – it takes two or three years,” he says.

“It is quite clear that [bigtech companies] are not paying their fair share of tax – we all know it. But the solution is to got through the OECD group which is a holistic consistent approach to taxation which means that they can’t move their activities into other countries and hide from their obligations and responsibilities.”

But Louise Beaumont, co-chair, Open Banking Payments Working Group, techUK, says the UK will press ahead with the digital tax.

“I think [the Chancellor] has found a way to get that tax and if it means a period of intense negotiation on tariffs the US might threaten us with, he will have those negotiations directly,” she says. “He does not need to go through the OECD, and it is not the right political headwind to involve an organisation that is trying to put itself front and centre of 40 different nations.”